EU readies warning to Huawei, ZTE

SORE POINT:：Trade Commissioner Karel De Gucht was reportedly preparing a letter telling the Chinese companies that they face duties until they drop state support

Reuters, BRUSSELS

Thu, May 16, 2013 - Page 15

The European Commission plans to send a formal warning to China that it is ready to levy trade duties against telecom equipment makers Huawei Technologies Co (華為) and ZTE Corp (中興) over what it says are illegal subsidies, people close to the matter said.

EU Trade Commissioner Karel De Gucht was set to win support from the bloc’s executive yesterday to send the warning letter and show Chinese President Xi Jinping (習近平) that Brussels is serious about countering what it says is state support.

“We want to send a warning to the Chinese, a letter of intent that if they don’t change their practices, there will be duties,” said one person involved, adding that De Gucht had the full backing of European Commission President Jose Manuel Barroso.

The EU decision marks an intensification of efforts to guard against what Brussels says is dumping by China, the EU’s second-largest trading partner. From next month, the commission will also levy duties on billions of dollars of solar panels from China, EU officials have said.

Unlisted Huawei was a little known telecom equipment firm less than a decade ago, but now, along with its smaller rival ZTE, it holds almost a quarter of the European market.

An internal EU report last year recommended that the 27-member bloc should take action against Chinese telecom equipment makers as their increasing dominance of mobile networks made them a threat to security as well as to home-grown companies.

Chinese telecom equipment makers receive export rebates from the Chinese government and are also able to sell their equipment at lower prices as China’s state-run policy banks usually provide loans for network infrastructure in emerging markets, industry sources said.

However, Huawei and ZTE say European governments also provide some form of incentives for their own telecom equipment makers, they said.

Huawei derives more than a third of its revenues from Europe, Middle East and Africa, while ZTE gets around a quarter of its revenues from Europe, the Americas and Oceania markets, company data showed. No further breakdown was available.

“There is probably slightly more impact on Huawei as it has a larger market share in Europe compared to ZTE. Some of ZTE’s projects in Europe aren’t making money anyway,” said Yang Haofan (楊昊帆), a telecom analyst from Guotai Junan Securities in Shanghai.

“As for European vendors, they face getting fewer contracts for their bids in China’s 4G market if the EU does go ahead with its sanctions,” Yang said by telephone.

De Gucht told said in February there were serious concerns about China’s growing presence in mobile telecoms networks, noting that the US and Australia had effectively shut Huawei out of their markets over security concerns.

Last year, Germany excluded Huawei from supplying the infrastructure for a national academic research network.

However, European manufacturers Ericsson, Alcatel-Lucent and Nokia Siemens Networks fear retaliation in China if they push to launch an anti-subsidy case, so the commission has been collecting evidence on Huawei and ZTE with a view to launching a case on its own initiative. Officials say they now have proof of Chinese subsidies.

“This is a political decision tomorrow,” said another person briefed on the commission’s thinking. “It’s basically saying, we have all the evidence we need, we don’t need to launch an investigation.”